With so many annuities for Medicaid planning purposes now being offered by way of insurance agents, financial planners, and insurance companies, I feel that it is necessary to distinguish the products offered by ISN Network from the group. In recent months the term “Medicaid Friendly Annuity” has been heavily used in the Medicaid Annuity marketplace. It is important to know that ISN does not provide Medicaid Friendly Annuities, nor do we recommend that they be used in converting countable resources into an income stream for purposes of establishing Medicaid eligibility.

With a Medicaid Friendly Annuity, seniors are being advised to purchase a tax-deferred annuity which is nothing more than an investment vehicle and a countable resource. The senior is then told that at the time he or she should enter a nursing home, the tax-deferred annuity would be annuitized, thus immediately qualifying him or her for Medicaid benefits.

Whereas a Medicaid Compliant Annuity is a planning tool offered by a limited number of insurance companies, and an even more limited number of insurance agents. The Medicaid Compliant Annuity was designed to convert a spend-down amount into an income stream, and is an immediate annuity that must contain the following provisions:

• it must be irrevocable and non-assignable;
• it must be actuarially sound;
• it must provide payments in equal amounts, with no deferral and no balloon payments; and
• It must name the state Medicaid program as a beneficiary to the extent that medical assistance benefits were provided to the institutionalized individual.

The primary obstacle with a Medicaid Friendly Annuity is that it typically will not contain all the aforementioned provisions upon annuitization. While annuitizing the tax-deferred annuity will convert the product into an immediate annuity, it most likely will be assignable and will not be actuarially sound. Furthermore, in that the Medicaid Friendly Annuity is typically purchased long before the senior even enters a nursing facility and the cost of care is still unknown, upon annuitization the immediate annuity may provide an inappropriate amount of income.

I have heard countless horror stories from elder law attorneys with clients who were sold Medicaid Friendly Annuities and were forced to surrender the policies in that the product did not meet Medicaid eligibility requirements, thus subjecting the senior to obscene surrender charges. It is extremely important for seniors to exercise caution when considering insurance products advertised as “Medicaid Friendly.”

This weeks entry to “My Bersonal View” is an article from Sandy Schussel. Like me, Sandy has a legal background prior to getting into the insurance world. After fifteen years as an attorney, and the “rainmaker” for his firm, Sandy was disabled by complications resulting from cancer treatments and was faced with either rebuilding his practice or doing something he was passionate about.   He found his answer in training and coaching insurance agents. Here is a great piece on “handling objections.”

Give Up The Need To Be Right

by Sandy Schussel

Have you ever been aggravated trying to prove to a prospect that his objection to your offer makes no sense — so aggravated, in fact, that you ended up in an argument with him and, of course, ended all possibilities of ever making him a client? Why was it so important for you to be right?

When she was little, my daughter Madi used to argue with me constantly.

“No, Daddy, you’re wrong! My teacher told me…”

No matter how misguided she was, she expended exhausting amounts of energy insisting that she was right. I tried to teach her to say, “Maybe you’re right, Daddy, and maybe you’re wrong,” and then follow-up with something like, “Let’s see if we can find out” — but it seldom worked.

Then, one day, I just decided to practice what I was preaching with her. I stopped trying to be right. When she insisted that her  misinformation was correct, I responded with, “I never knew that!” or, “I always thought it was the other the way around, but I guess I  was wrong.” The result? No more arguments and a lot more peace.

Yesterday, I watched a friendly conversation between two people at a fast food restaurant turn into an argument. The two men had begun to talk about global warming, and one of them was insisting that it was all “a lot of bunk.”

Each man was busy trying to prove that he was right and the other was wrong. What struck me was how easily the interaction had gone from casual to hostile. The conversation became so loud and abusive that an employee of the restaurant had to ask them to leave.

Who was right? What difference did it make if they could not agree? Arguments don’t happen unless someone needs to prove another  wrong.  What if we could let go of this need — especially when dealing with prospective clients?

When your prospect is objecting, even if the objection is absurd, don’t disagree. You won’t change his mind — and instead, you will alienate him entirely.

Try starting out with something like, “I can see how you might think that,” and then pose a question that might get him thinking further.

“I don’t need any more insurance,” he might say.

“You’re probably right,” you can respond — without argument — although it’s obvious to you that he’s grossly underinsured and may be leaving his family in a catastrophic position. “Can I ask what you’re basing that on?”

“I just know we have enough,”  he might reply.

“Well, just in case, would you be open to going through a simple exploration with me to see if you’re missing any coverage you could really use?”

Let of the need to prove you are right from the get-go. Your life will be much less stressful, and your business will grow.

I had the pleasure of attending the Kansas City Life MGA Conference for 2013. KC Life is an up and coming carrier who has some really competitive products that we can all benefit from. They are forward thinkers and they have a balanced approach at creating products that are sustainable and sellable. Some of their great ideas have led to some great products including the best ROP term product in the market (the twist is it is built on a whole life chassis); a fixed annuity with an income rider (not an equity index but a fixed product) and their latest creation an Equity Index UL that is a real cash accumulator.

At the conference I was privileged to hear a presentation on the KC Life income rider that is part of their annuities. Like my previous article in this blog “What is a Mortality Credit”

https://jeffreyberson.com/2013/03/21/mortalitycredit/

KC Life gives us some real ammunition in dealing with retirees…here are some highlights:

There is a lot of science in retirement planning – including understanding the following questions:

• How long will I live in retirement?
• What is a proper spending rate?
• How much risky stocks vs. safe investments?
• Is my current plan sustainable?
• How long will my number last?

So many factors are part of the equation that the “science” of retirement is clearly a part of the unknown. In the 2011 Report on Retirement Income from the Government Accountability Office even they acknowledged the complexity and risk associated with planning for retirement:

“(Retirees) should use a portion of their savings to purchase a lifetime income annuity to cover necessary expenses.”

By giving up control of part of your money you can gain control over the many uncertainties in retirement – longevity, withdrawal rate, market fluctuation, order of returns and deflation.

If you are not yet looking at annuities with income riders, now with the endorsement of our government, you should be. Call us to find out the best products and solutions for your clients. We can help you @ 1-800-338-1892.

For the last 10 years Genworth has been conducting a survey on the costs of health care in the United States. As a service they have been publishing and providing the information to reps and clients. As an IMO, we are committed to the Long Term Care Industry. We firmly believe that LTC Insurance is a vital part of a persons retirement plan and have a full service department to help our reps fulfill their role as a LTC expert. Too many times we see reps sit down with their clients to discuss their financial future and forget to mention the one thing that can wipe out all of the planning they do…and that is a catastrophic illness. The survey from Genworth is one tool we use to help educate reps and clients on the costs and the risks of going uninsured.

The Genworth 2013 Cost of Care Survey will again cover nearly 15,000 long-term care providers across 437 cities and regions, providing consumers with a local perspective of their potential costs.

This year, the Survey’s tools include:

• Location-specific cost information by state and type of care setting
• Daily, monthly and annual costs
• Cost comparisons for up to three different regions
• Projected cost of care calculations for 10, 15, 20, 25 and 30 years out

You can view the Genworth interactive “Cost of Care Survey” map at:

https://www1.genworth.com/content/genworth/

I had an interesting meeting with a client this week who is older (74) and has a much younger wife (45). My client is very well off and I have done a lot of work for him in the past in regards to Estate Planning. This is his 2nd marriage as his first wife passed away several years ago. Most of our planning in the past was to be sure we set-up his estate in the best way to minimize the estate taxes and maximizes the inheritance for his kids and grandkids. This meeting was different as not only was he newly married, but his younger wife is not a U.S. Citizen (she is from Spain).

In a growing number of U.S. households one of the spouses is a Foreign National. This development underscores the need for planning professionals to be familiar with estate and wealth transfer strategies for the non-citizen spouse.

Every U.S. Resident – whether a citizen or not- is subject to federal estate taxes and the tax is imposed on the person’s world-wide assets. For this reason, non-citizen spouses need life insurance for many of the same reasons as their American spouses do.

Where the trick comes in, and what I explained to my client, is understanding the differences for a non-citizen spouse. For instance, where both spouses are citizens, assets can be transferred from one spouse to another without gift or estate taxes thanks to the “unlimited marital deduction.” But the unlimited marital deduction is not available for transfers to a non-citizen spouse – even if they are a permanent resident. The reason for this is the governments concern that a non-citizen may move back to her home country taking the gifts and inheritance with them. Once the money leaves the U.S. there is little chance for the U.S. to recover any taxes owed.

Some options for the non-citizen spouse include:

• The non citizen spouse may become a U.S. citizen before filing the federal estate tax return
• The deceased citizen’s estate can be transferred to a qualified domestic trust (QDOT) provided it is set up by the due date of the estate tax return (9 months after death or 15 months with an extension)
• A cash strategy may be adopted to pay the decedant’s federal tax – a dollar for dollar option

For my client, and his much younger bride, the news was good. The planning could be simple since she was planning on becoming a U.S. Citizen anyway. She also had her own money and really was not interested in my clients money. They both wanted what was best for their children (she had two kids of her own). The realities of Estate Planning and the complication of using a QDOT were enough for her to start studying her American History since then they could use both of their martial deductions and truly maximize the transfer of wealth to their heirs.

For our other clients who are in this position it is good to understand what a QDOT is so you can help them understand and make choices for proper planning.

How The QDOT Works

1. Federal Tax Law permits a marital deduction for assets transferred to a trust for the benefit of the non-citizen spouse
2. If the trust qualifies as a QDOT under IRC2056(d)(2) then the QDOT can defer federal estate taxes inherited by the non-citizen spouse until the trust distributes its assets.
3. Lets assume the total estate value is $20 million. If the U.S. Citizen dies first we can initially take advantage of the $5 million exemption and put the $5 million into the Credit Shelter Trust (CST).
4. The balance – $15 million passes into the QDOT
5. On the 1st death the federal estate tax is $0.
6. While the non-citizen is alive, they may be entitled to discretionary distribution of trust principal and will have access to all income that comes from the QDOT
7. On the 2nd death, the heirs receive the CST assets without any additional estate taxes.
8. The assets in the QDOT will be subject to the QDOT tax – and the remainder will pass to the heirs.

Since there is still a tax on the QDOT assets – life insurance on the non-citizen spouse is still appropriate. In most cases a 2nd-to-die policy could work. For my client with the much younger spouse, we planned only for a policy on her since the cost was so low. In the end, I was convinced that my client was doing the right thing for his family and for his new wife. It was clear that they had married for love and that money had just come along for the ride.

For more information – call our offices for support @ 800-338-1892.

When I first came in the business I was only 24, but I looked like I was 16. I remember thinking that I would look older when I met with potential clients and associates if I did not shave. So, picture if you will a scruffy looking 16-year-old trying to promote Estate Planning to business professionals…yes…not a pretty picture. As luck would have it I met a man who was honest and straight forward and he said this to me:

“Son, your ideas are good but let me give you some advise on selling. Selling is like shaving, if you don’t do it every day you are a bum.”

Now that was a wake up call. Needless to say I started shaving every day. Which leads me to todays entry to the blog. I got a great email from our local SDEA president. He called it “10 Things to Do Every Workday”. Other than shaving, I think his thoughts are relevant to all of us.

10 Things To Do Every Workday

Mike Stuzik, Executive Director/CEO

1. Read something related to your industry

2. Read something related to business development

3. Send two emails to touch base with old colleagues

4. Empty private client inbox by responding to all issues/questions

within one business day

5. Check in with each team member on their progress

6. Have a short non-work related conversation with every

employee

7. Review top three goals for company that are focused on growth

8. Identify and execute one task to support each of the top three

goals

9. Post a valuable pieces of content on all major social media

accounts

10. Take a full minute to appreciate what you have and how far

you’ve come.

We have featured Brian Gilder in our blog before. And we will certainly be featuring him again, just as he was featured in this story on ABC news:

http://abclocal.go.com/kabc/story?id=7096811

Brian Gilder is our leading rep and is part of our ISN Network Long Term Care team. His expertise in product, sales solutions and marketing is now available as a resource to all contracted ISN associates. Now is the time to get on board with ISN Network and look at the possibilities that LTC can add to your marketing for 2013.

10 Reasons People Don’t Buy LTC Insurance…and why they should reconsider

an ISN Network exclusive written by Brian Gilder, CFC, CLTC,CSA  and author of the book “Wealth Solutions Using Long Term Care: Why you should care about Long Term Care!”

As the threat of a catastrophic illness becomes more real to the growing baby boomer population, it is often a good idea to look at LTC insurance as an option. But in recent LIMRA studies, statistics show that the majority of baby boomers do not own coverage. There are many excuses and reasons given. In this exclusive ISN Network special report, let’s take a look at some of the common reasons people don’t buy long-term care policies, along with the facts that debunk these popular myths.

“I’m too young.”

Actually, slightly less than half of the people who need long-term care are under the age of 65. Younger people may require care after an accident or stroke, or because of a chronic illness such as multiple sclerosis. Perhaps the most famous example of this is the actor Christopher Reeve, who in his forties became a quadriplegic due to a freak horseback riding accident. Barring major advances in the care of spinal cord injuries, he will require long-term care for the rest of his life.

“I’m too healthy.”

This excuse is a version of the “I’m too young” defense, and it presents a strange irony. The fact is that the healthier you are, the longer you will live . . . and the longer you live the more likely that you will need long-term care due to old age or frailty! If you didn’t take such good care of yourself, you would be more likely to have a health condition that could cause an early death. (But that’s not such a good option.)

The younger and healthier you are when you take out a long-term care policy, the lower your premiums will be. Individuals who wait run the risk of waiting too long and not being healthy enough to qualify.

“I plan to self-fund any long-term care services I might need.”

While this may be possible for some it is not an option for most of us. As we’ve seen, costs may vary according to location, but the average cost of nursing home care is about $72,000 per year, or $200 per day. The cost to receive care at home is approximately $4,00 per month and rising.

Ask yourself: “How long can I afford to pay $72,000 a year out-of-pocket?”

And here’s one more question: Why would you want to?

“My assets are protected in a living trust.”

A living trust is designed to avoid the lengthy probate period, but assets held in trust are counted by the government in determining your Medicaid eligibility. The more assets you have, the longer you would have to wait to become eligible for Medicaid, and you would have to deplete or transfer those resources before the government would pay. The only type of trust that will protect your assets from the cost of long-term care is an irrevocable trust. However, if assets have been transferred into an irrevocable trust within 60 months prior to applying for Medicaid, a period of ineligibility is triggered. During this time you would have to pay out-of-pocket for your long-term care needs.

“My kids will take care of me.”

Many adults are willing to assume caregiver responsibilities for their aging parents. But doing so necessitates a radical shift in lifestyle and a financial drain. We’ve already mentioned the stresses experienced by the Sandwich Generation. Now, imagine what will happen as that generation of caregivers ages. A 50-year old woman taking care of her 70-year old mother will be 70 herself when her mother is 90. Is it feasible to ask a 70-year old to lift another person into bed? Even worse, what if that 70-year old daughter needs long-term care as well?

“I don’t want to go into a nursing home.”

Some people avoid planning for their long-term care needs because they are afraid of ending up in a nursing home. This is a common concern related to the fear of losing one’s independence, and it is exacerbated by media images of inadequate facilities. There are two ways to approach this type of denial. First, the nursing home of the future is certain to be a nicer place to live than many people imagine, as groups like the AARP lobby for improved standards. The Baby Boomers have set the national agenda since the 1960s, and they are not going to be willing to put up with poor care facilities as they age.

Second, long-term care is not synonymous with nursing homes. In the majority of cases, people receive long-term care in a variety of other settings, including their own homes. Additionally, many people live in beautiful assisted living facilities where they have their own apartment and furniture and require minimal assistance.

“My VA benefits will pay.”

The Veteran’s Administration statute allows but does not mandate that the VA provides nursing home coverage. Because of limited availability, the agency rations nursing home resources according to a list of priorities, at the top of which are veterans with service-connected disabilities. The occupancy rate for VA nursing home facilities is more than 90 percent so access can be difficult, and location may be a problem since some states have only one or two VA nursing homes. The only VA home care benefits are a hospital-based home care program that does not provide home health or personal care aides.

“I’ve got disability insurance instead.“

Disability insurance replaces a portion of your income but does not address the additional financial burden of long-term care services if you become disabled. Since these services can easily run higher than $6,000 per month, you need both types of insurance.

“Medicare pays for long-term care. Right?”

Most people believe that Medicare will pay for their long-term care needs, and in fact Medicare does offer some short-term care assistance. However, this program only pays for skilled nursing care at 100 percent for 20 days after a three-day hospital stay. (The problem is that most nursing home stays are not for skilled care.) Medicare will partially pay for an additional 80 days but you must make a co-payment. After 100 days, all Medicare benefits stop.

“I will apply for Medicaid.”

For low-income seniors Medicaid is a viable option, but to qualify for it you must be impoverished. For middle-class and wealthier Americans, this means you must spend down your assets before applying for coverage. And you can’t simply write a fat check to your children. There is a 36-month look back period when you apply for Medicaid. In other words, if you have given money away in the 36 months leading up to your applying for Medicaid you will become ineligible for benefits for a period of time equal to the amount of money you gave away. (We will discuss this in more depth in Chapter Seven.)

Also, there is a huge strain on the nation’s Medicaid budget already. This program is ill-equipped to meet the massive needs that will arise once the Baby Boom generation begins to require long-term care in large numbers. For those who can afford it private insurance is a way to defend their personal wealth–and ease the strain on our country’s finances.

Conclusions

Polls reveal that a majority of Americans understand that the costs of long-term care are a growing problem, but most people don’t know how big a problem they are. Depending on the type of care, current costs run between $20,000 per year for adult day care programs through more than $70,000 for a year’s stay in a nursing home. And these figures are averages; in some regions of the country the costs are much higher.

Worse is the fact that the price keeps rising. Current projections suggest that the average cost of nursing home care in the year 2030 could be as high as $190,000 per year. Unfortunately, many people misunderstand the role of private insurance in paying for long-term care services. Myths abound for a couple of reasons, including the relative youth of the long-term care insurance industry and the resistance most people feel about facing the possibility of needing care at some point in the future. By tackling these myths one at a time and presenting the facts, we believe that most people will see the importance of obtaining long-term care insurance.

An income annuity is an effective generator of income. It can provide high levels of guaranteed payments that cannot be outlived. In fact, it would be difficult to find another strategy that can offer the amount of income that an income annuity produces, coupled with its high level of security and stability.

Let’s look at a representation of how the payments of a Guaranteed Lifetime Income Annuity would look for a 65 year-old-man, based on a premium of $100,000, which produces an annual income of $6,500.

An Income Annuity that is guaranteed for life is different in makeup than any other product on the market. It is the “nature” of the income payments that is different and can only be guaranteed by an insurance carrier. Guaranteed Lifetime Income Annuity payments are comprised of:

Return of Premium – Each payment includes the return of a portion of the original investment made by the policy owner.

Interest. – There is a portion of each payment that comes from interest earned from the insurance company’s investment of premiums.

Mortality Credit –  Each payment includes income that is directly linked to the current age of the annuitant. This portion is known as mortality credit.

While the payments remain the same, the proportion of the individual components changes over time. They start off mostly comprised of interest and the return of your premium, but the longer you live the more the mortality credit comes into play.

What Is Mortality Credit?

A mortality credit is also known as the “mortality yield”. With an income annuity, premiums paid by those who die earlier than expected contribute to gains of the overall pool and provide a higher credit to survivors than could be achieved through individual investments outside of the pool. This is the secret formula that makes the annuity sizzle.

Our clients have no problem understanding the idea of mortality when we talk about life insurance. My CPA friend actually has a term policy that he bought from me. He pays $3,000/yr for a $2,000,000 term policy. So I asked him…how do you think an insurance company can afford to pay your family $2,000,000 if you die and only asks you for a premium of $3,000? He did not hesitate to answer…they pool the mortality. (I told you he was smart) I said the income annuities work the same way – it is the pooling of mortality that makes the income annuity different and it is why they can make the guarantees that they do.

The lunch ended with my CPA friend having a different point of view. Later that day he called me and asked me to show him my “best” carriers for Income Annuities. Surprisingly he has invested some of his own money into the concept (not all of it) and since that lunch he has referred me 3 different clients who turned into sales. Some times one simple explanation can help you convince even the smartest of clients.